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Income, Poverty and Employment in the Age of COVID-19: Anti- and Post-crisis Social Protection Policies

Income, Poverty and Employment in the Age of COVID-19: Anti- and Post-crisis Social Protection Policies

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Many countries discovered that their social support systems were unprepared to respond quickly to the coronavirus crisis and that emergency measures were needed to protect incomes and jobs. This was the message that experts of the HSE Institute for Social Policy, Financial Research Institute (FRI) and World Bank delivered at a joint seminar.

Governments should focus their efforts on the labour market during a crisis because that is what is hardest hit, said HSE Vice-Rector and Institute for Social Policy Director Lilia Ovcharova in her opening remarks at the seminar. 'We are experiencing an unprecedented crisis,' she said. 'This is a huge shock.' And, according to World Bank Country Director for Russia Renaud Seligmann, 'Poverty will clearly be worse tomorrow than it is today.'

The scientific and practical seminar Income, Poverty and Employment in the Era of COVID-19: Anti- and Post-crisis Social Security Policy—devoted to social support measures in the fight against the new coronavirus pandemic — was held online on June 4-5, 2020. On the first day, seminar participants described which measures various countries had adopted to support their citizens and economies. Speakers presented the experience of China, Great Britain, Germany, South Africa, Belarus, Uzbekistan and other countries.

'It seems to me that social assistance systems were not flexible enough,' said FRI Director and moderator of the first session Vladimir Nazarov. But the current crisis differs fundamentally from those of the past: now, we must maintain employment levels to be able to later restore economic activity quickly. 

It is difficult for the system to change during a crisis. Therefore, when we think about the social support system, we need to install various countercyclical policy tools in advance

Nazarov advocates targeted assistance for those in need and a single payout instead of multiple payments providing income support. Under normal conditions, undeserving applicants must be filtered out carefully, but during a crisis, the authorities should do just the opposite and expedite access to government assistance, the FRI director said.

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Almost every country responded to the crisis by launching new social protection programs or adapting existing ones, said World Bank Senior Economist Nitin Umapati. Most issue direct payments to their citizens. They average 25% of monthly GDP, are temporary and come at a cost 2.5 times higher than payments made prior to the pandemic.

Chinese Coupons As a Source of Inequality

Ruslan Yemtsov, the World Bank Human Development Program Leader for China, Mongolia and Korea described how the Chinese authorities responded to the crisis. He noted that when efforts to combat the pandemic had only begun, no one could even imagine what the consequences might be and that now the forecasts are becoming increasingly pessimistic. The World Bank initially predicted that the crisis would push approximately 40 million people around the world below the poverty line, but that estimate has already reached 150 million and continues to grow.

The deepening pessimism stems from the fact that the current crisis comes on top of serious political changes in which some countries are attempting to halt globalization and alter production chains, and due to the extremely high level of debt that many countries and companies have incurred.

China, the first country hit by the pandemic, needed to implement emergency social measures to protect the population. Beijing began issuing social payments one week after the crisis began, but the overall cost was small — just 0.1% of GDP. The government's decision to waive obligatory social, medical and pension insurance payments required compensation equaling 0.6% of GDP. The country also offers job retraining to individuals whom local employment services determine have not had enough opportunity to find a new position since the crisis has passed.

Most interesting, however, is that it wasn’t until the end of April that the decision was made to change the social assistance system permanently

China will expand its programme of assistance to the poor because it currently reaches only 70 million people, although the number of those affected by the crisis is much higher. Ruslan Yemtsov noted that the Chinese system is highly decentralized, making it difficult to manage and incapable of responding to the crisis effectively. 

To spur consumption, China also made wide use of electronic coupons enabling citizens to receive discounts on store-bought goods (and for which retailers received subsidies). The programme worked, but it exacerbated inequality by aiding only those with enough money to make purchases in the first place.

British-style Perestroika and the Crisis in South Africa

The crisis in Great Britain is unfolding even as labour productivity and wages have stagnated since 2008-2009. That situation began to improve in the early 2010s, said Institute for Fiscal Studies Deputy Director Robert Joyce, but lost steam after the Brexit decision in 2016. At the same time, spending on support for citizens has fallen and it turned out that social security measures focused primarily on working people because unemployment had remained low and low wages were seen as the main problem. 

Volunteers in London feed the homeless
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The UK had practically no measures in place that would compensate people for falling incomes, making it necessary for the country to reinstate them. The state compensated those sent on indefinite, unpaid leave (approximately one-third of all employees) by paying 80% of their prior earnings and the employer providing the remaining 20%. Mr Joyce noted that this was a radical change for ordinary workers.

We wanted to protect the jobs that would be needed over the long term, once the economy bounced back from the crisis

Britain’s anti-crisis measures are expensive, equalling all government expenditures for healthcare. The current discussion concerns how these measures will affect the population over the long term as well as how to roll back the system — that essentially pays people to sit at home and do nothing — in November as planned. In another labour market challenge, a shortage of workers has arisen in certain industries and the government has no tools for addressing the problem. It might be necessary to create electronic platforms for such situations.

Although the UK, as a wealthy country, was able to quickly increase spending and assist its citizens while maintaining stability, South Africa paid very dearly for its quarantine. Dr Mark Blecher, the South African National Treasury’s Chief Director for Health and Social Development, announced that the crisis had resulted in famine, 'kilometre-long' food queues and riots in some parts of the country.

Economic indicators have fallen, tax revenues are down by 25% and the budget deficit and unemployment have risen sharply. South Africa has had to ask international financial institutions for help as the risk of a debt crisis looms. 'We had to lift strict quarantine measures in order to overcome the economic crisis,' Dr Blecher said.  

Providing direct income assistance to citizens has proven the most difficult task, costing twice as much as healthcare. The government has introduced many new social support mechanisms, primarily those that provide assistance to informal sector workers, the unemployed and families with children. Child support was increased and mothers were paid childcare benefits. But after two months of lockdown, the crisis forced leaders to reopen the economy, Dr Blecher said.

Russian Regions: Additional Payments and Food Packages

The second day of the seminar included Russian regions presenting their experience with social protection measures. Olesya Feoktistova, Head of the FRI Centre for Social Finance and moderator of the discussion noted that until 2018, most social payments were allocated according to category, but that they were now shifting towards targeted support and support for families with children. She also noted that many social support measures are provided online and that ‘social protection is already on the way to a bright digital future.’ 

Representatives of Tatarstan, the Komi Republic, the Altai Republic and the Pskov region spoke at the seminar. Overall, regional measures for social support matched the national and global trend of providing additional payments to the unemployed and families with children and assistance to the elderly and disabled. It is particularly worth noting that volunteerism is widely encouraged. In addition, the regions are rapidly switching over to digital, targeted support and making use of the social contract and public works. 

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In Tatarstan, targeted measures account for more than 60% of all support measures, said Elmira Zaripova, the Republic’s Minister of Labour, Employment and Social Protection. During the crisis, the authorities introduced payments covering income deficits of families with five or more children, the needs of young families with children who need medicines and the cost of kindergarten fees. A great deal was also needed to help sole proprietors and self-employed people who work without registration. Food packages worth 1,200 rubles were distributed to needy citizens on four occasions. As for the unemployed, many do not want to find jobs and do not agree to sign a social contract. ‘They say, “We’ll get by somehow during the summer,”’ Ms Zaripova said.

Ilya Semyashkin, Deputy Prime Minister and Minister of Labour, Employment and Social Protection of the Republic of Komi said that the increase in unemployment benefits had changed people’s approach to employment. He explained that, whereas people used to come to employment services and say, ‘Give me a job, I want to work,’ they now say, ‘Give me an allowance, I don’t want to work.’ The Republic is in the process of implementing a social contract and grocery cards.

Importantly, we stepped up our efforts to implement poverty reduction tools in time. This enabled us to create a kind of safety cushion for families with children during the quarantine

Before the crisis, Pskov region authorities had planned to issue mothers a social card and a 20,000-ruble payment to buy medicines, clothing and shoes for their children, as well as home repair materials. However, they decided to send the money directly to citizens without waiting for them to receive the cards. 'We expected that 400 people would apply for these funds, but 2,000 have already applied,' said Pskov region Social Protection Committee Chairperson Olga Evstigneeva.  More than 22,000 food packages have been distributed, with volunteers helping with both the packaging and delivery.

Altai Republic Minister of Labour, Social Development and Employment Adar Sumin noted that 60% of the region’s residents receive benefits from social support measures, most of which are focused on supporting families with children. The Republic is also implementing a social contract with funding of 316 million rubles, 313 million of which was provided by the federal budget. The social contract has proven more effective than standard payouts. ‘People act more responsibly,’ the minister said. ‘Some even seek treatment to stop drinking.’

Summing up the results of the seminar, Lilia Ovcharova noted that the social contract has great potential and that the regulatory framework governing this mechanism will now change at the federal level. She said she also supports public works measures, but warned that they currently include only construction, production and trade, but needed to also include services such as care for the elderly and people with limited autonomy. This segment, she said, could provide up to 150,000 jobs. She added that Russia needs new federal-level programmes promoting employment and that include public works.

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